Pirate's Cove

I suppose most lenders are a little leery of handing out cash like candy at favorable interest rates, expecting it to not be repaid as the projects crash and burn, unlike SVB

Analysis-SVB’s climate tech clients face humbling funding questions

For years Silicon Valley Bank was a lender of choice for climate technology startups keen to tap specialised support for early-stage companies. Post its collapse, they may face higher finance costs wherever they next choose to bank.

The meltdown of the 40-year-old lender triggered days of stressful phone calls for many types of technology firms as they lined up contingency plans for funds, although some calm returned after U.S. authorities stepped in to insure their deposits.

For businesses with an environmental mission, the big question now is whether investor demand to address climate change will continue to help them secure attractive terms, or if less start-up friendly lenders prove tougher partners as the broader banking system shudders.

At the start of 2022, SVB pledged to provide at least $5 billion in financing by 2027 to support sustainability efforts in industries including green buildings, renewable energy and water technology – seen as growth markets as the world shifts away from fossil fuels.

Would have been nice to have that money available after all the questionable decisions, like the huge amount of money in Treasury bonds which were annihilated with the rising interest rates, eh?

A number of startup executives and their VC backers, including Michael Sonnenfeldt, Chairman of MUUS Climate Partners, said the bank’s collapse could lead to more difficult borrowing terms for their young industry.

The chillier financing climes, already in play as interest rates rose, would be particularly acute for companies looking to spend big as they scale, for example on building infrastructure.

Equity valuations could be impaired between 5% to 50% over the coming year, Sonnenfeldt said, but the wide range shows the uncertainty of the situation: “We don’t know how bad it will, but it won’t be good,” he said.

Those startups will now have to prove the viability of their projects to get the loans, because most want a return on their investment. Most banks want to be repaid. They do not want to invest in projects that will never make money.

However, finance firm Alantra said it expects the bank sector’s challenges to prompt venture capital lenders to focus more on quality firms that can scale and be capital efficient.

“At a minimum, this will likely drive continued tightening of investments and a push to have their portfolio companies cut (cash) burn,” it said in a note.

How did housing work out when lenders were giving loans to people who really couldn’t afford them?

Mona Dajani, partner at law firm Shearman and Sterling, said most of her clean energy clients either banked with SVB or faced some other impact from its troubles. SVB “cultivated a reputation as being very friendly to clean energy… they were willing to underwrite more risk,” she said.

This is what happens when lenders are more interested in ESG (environmental, social, governance) than making wise decisions. Yes, other banks have tanked before over other issues, but, it almost always comes down to poor financial decisions. And ESG is being run poorly.

Unfortunately, there’s always government to give out crummy “loans”.